ST : Higher home prices to stay, say some

Jul 11, 2010

property

Higher home prices to stay, say some

Others say excessive liquidity exaggerates prices

By Jessica Cheam

PROPERTY prices of both private and Housing Board resale flats have, for the first time, surpassed previous peaks to reach new records.

Latest official estimates show private home prices rose 5.2 per cent in the second quarter, after a 5.6 per cent jump in the first quarter. That means prices are now 1.5 per cent above the 1996 highs.

HDB resale flat prices rose 3.8 per cent in the second quarter, marking the eighth straight quarter that prices have broken records since 2008, when they surpassed the peak levels of 1996.

The rise in prices signals a strong demand for homes in the property market. But with prices at record levels, can this demand be sustained?

For home-buyers and investors still on the lookout, the big question is: To buy or not to buy? Does it make sense to buy now, given that prices are at the highest levels?

Or is this a new era of property prices in Singapore?

Most industry analysts whom The Sunday Times spoke to seemed to think so.

The increase in levels of affluence in Singapore and in Asia due to a robust regional economy has helped to fuel prices, said C&H Realty managing director Albert Lu.

These prices move up and down in tandem with property cycles, but each peak is higher than the previous peak and each bottom is higher than the previous bottom, noted ERA Asia-Pacific associate director Eugene Lim.

'So, if we were to plot a trend line across all the cycles, we can see that property prices will be on an uptrend over time,' he said.

Given Singapore's economy is roaring at double-digit growth rates, property prices can be expected to continue their march upwards in the short term, he added.

Even if private property buyers wait a year or two, there is no guarantee that prices will come down. And when they do, desirable properties are often taken off the market. 'So if you see something you like, do your sums and if it is affordable for you, then go for it.'

Mr Lu agreed. Buyers who cannot wait might want to buy before prices go up further, although if the purchase can be put on hold, 'it would be best to catch the next down cycle', he said.

This means the absolute loan amount a buyer takes will be lower and more affordable.

But prices are unlikely to return to the 2004 levels and the next down cycle could be as far as five years away, he said.

Chesterton Suntec International research and consultancy director Colin Tan has a contrarian's view.

This new level of prices is 'somewhat exaggerated by the excessive liquidity in all the markets today', he said.

While the market has achieved new peaks, it has done so on the back of 'abnormally low interest rates' - three times less than normal interest rates, he added.

The fundamental level of prices is likely much lower and close to pre-2007 price levels, he said.

'So although we're on a higher plane, current price levels will correct significantly to their true levels. The big question is when.'

So have investors missed the boat? 'In a sense, they have. But it's a boat lined with super glue - easy to jump into but difficult to disembark,' cautioned Mr Tan.

The rental market has plateaued in the second quarter and from anecdotal evidence by agents, investors are finding it difficult to achieve the rental returns they had hoped for, he added. As a general rule, investors should aim for a 3 per cent to 4 per cent rental yield per year, said Mr Lim.

Despite the high price levels, Associate Professor Sing Tien Foo of the National University of Singapore's real estate department observed that the current growth in prices is 'still not as high compared with the growth in prices in the previous peaks in the 1990s'.

However, 'we have to be concerned about the high volatility created by the active markets' and cautious about the possibility of a property bubble, especially if prices continue to increase at a pace that is not sustainable or reflective of the health of the economy, he added.

jcheam@sph.com.sg